Paying employees cash vs check with payroll taxes

Discussion in 'Business Operations' started by sedge, Feb 3, 2011.

  1. sedge

    sedge LawnSite Fanatic
    Posts: 32,648

    Have a question, as a friend of mine pays his employees cash and claims it saves him money.

    Pay the guys cash benefits. No paper work to take care of. No payroll matching and workman's comp. Guys will work for less.

    Paying by check benefits. You get to deduct their wages.

    Ok, in the end when all considerations are figured in, what really is the cost savings one way or the other. I have read that an employee costs 25% above their direct pay in related expenses including payroll taxes, workman's comp and costs to do all the paper work, etc. If you pay cash you eliminate all those expenses, plus the guys will work a bit cheaper.

    If your in the 30% tax bracket, then writing off employees is only saving you 30% correct? Or what am I missing.
     
  2. watsmi57

    watsmi57 LawnSite Senior Member
    Posts: 329

    pay cash ....keep up with it...and 1099 em
     
  3. aird208

    aird208 LawnSite Member
    Posts: 109

    Your missing the fact that paying your employees cash and not paying payroll and unemployment taxes is AGAINST the law. You can not 1099 an employee, only subcontractors. Your friend is just setting himself up for a nice bill from the govt.
     
  4. lyndont

    lyndont LawnSite Member
    Posts: 149

    Anyone willing to work for just cash or 1099 is dumb unless the pay is great or its just every once in a while he needs help. Sometimes if it rains and I get behind I have a buddy help me and I split it with him and its good for both of us. I only do this part time right now until I feel I can fully support my family without my full time job so when it rains I need help. I love doing this but working 50 hrs a week and doing this 20 hrs a week can really take a lot out of you. Last year I was working from sun up to sun down every sunday and I need to be in church on sunday. Just wish there were more hours in the day sometimes. I would sell my house and live with my parents until I had 60 or so clients if I were single and didn't have a 2 year old daughter
    Posted via Mobile Device
     
  5. sedge

    sedge LawnSite Fanatic
    Posts: 32,648

    So is speeding and I bet you speed.....

    I am not saying anyone should do it, just which way is cost benefit.

    On the 1099's, great idea until you get caught and you WILL get caught doing that fir sure. IRS looks closely at 1099's.
     
  6. aird208

    aird208 LawnSite Member
    Posts: 109

    Well short term yes it will save you money. It's just a gamble whether you get caught or not. There was a local curbing company here that tried the paying cash routine until an employee got injured and then exposed the company hadn't been paying workman's comp, the result was the company paying all medical bills and a hefty fine.
     
  7. BadRancher

    BadRancher LawnSite Fanatic
    Posts: 5,887

    Can you technically call them contract labor and make them sign a contract?
     
  8. BadRancher

    BadRancher LawnSite Fanatic
    Posts: 5,887

    I agree Bro. This season I am going to do my best not to work on Sundays. I worked alot of Sundays last year and missed church. I kinda think that is why I had so many issues with crap breaking down.... Religious Karma. Sorry to get off topic.
     
  9. lyndont

    lyndont LawnSite Member
    Posts: 149

    Ha I know what your saying though. Life honestly just seems to go smoother if your going to church regularly. I intend to do the same but its hard to grow this and work at the same time. If I get a few bills knocked out I may just go for it but its hard to do when you have a mortgage and bills. I just want to work for myself so I can have a job I enjoy and feel good about what I do but at the same time I have to provide for my family
    Posted via Mobile Device
     
  10. Will P.C.

    Will P.C. LawnSite Senior Member
    Posts: 965

    Paying cash is obviously going to be cheaper. However, bad idea for a number of reasons as previously mentioned.

    All it takes is a disgruntled employee to rat you out. This happened to a large landscape company near me.
     

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